Ross Beefs Up Mortgage Biz
February 6, 2009
New York investor Wilbur L. Ross boosted his mortgage asset business on Friday, Feb. 6, agreeing to buy the serving rights on a portfolio of home loans from Citigroup Inc. for $1.5 billion.
The distressed asset buyer's American Home Mortgage Servicing Inc. will buy the collection rights to about 185,000 mortgages as part of the deal. The purchase price includes not just rights to mortgage servicing fees, but temporary advances Citigroup made to mortgage investors on behalf of delinquent borrowers as well. American Home indicates that most of the price is related to those advances.
Irving, Texas-based American Home said in a statement the deal would increase the number of loans it services by 45% to about 575,000. The company is purchasing only the servicing rights, not the underlying loans. "The loans are a great fit with our existing portfolio," company CEO David Friedman said. "We look forward to serving a new group of homeowners."
Ross has made his fortune rolling up distressed industries, creating International Textile Group Inc. and International Coal Group Inc. in 2004 and International Automotive Components Group LLC in 2006. His private equity firm, WL Ross & Co. LLC, turned its attention to mortgages earlier this year, snapping up American Home Mortgage Investment out of bankruptcy for up to $500 million.
In April he spent $1.1 billion for Option One Mortgage Corp., the servicing business once owned by H&R Block Inc.
Embattled Citigroup is engaged in a full-fledged restructuring after reporting a loss of $8.29 billion in the fourth quarter. The company, which lost $18.72 billion in the full year, in January announced plans to split its bank operations in 100 countries from its asset management and consumer finance businesses.
Citigroup also split its Smith Barney brokerage businesses into a joint venture with Morgan Stanley. The company has received $45 billion since October from the government's Troubled Asset Relief Program as part of its effort to stabilize itself.
This deal with Ross enables Citigroup to wind down Citi Residential Lending, which was created in September 2007 after the bank acquired servicing rights on $45 billion of loans from the parent of failed lender Ameriquest Mortgage Co.
